Bank Term Funding Program (BTFP)
The Bank Term Funding Program (BTFP) is the name for the money that the Federal Deposit and Insurance Company and the Federal Reserve loaned to banks going bankrupt, starting in March 12, 2023. A couple of more banks have been added since then, but the bulk of the money is due in March 2024. The banks don’t have the money, so they’ll have to sell what they own, US debt and mortgage backed securities. Also, the Reverse Repo market funding the federal government should be tapped out by March. With the biggest historic buyers of US debt, the Federal Reserve, Japan, and China, currently being the biggest sellers, who will buy the US debt that the banks and Treasury are selling? So, either we play another round of musical chairs, or the music stops; but, at some point, the music stops. Fun times ahead.
The BTFP was started on March 12, 2023 to bail out Silicon Valley Bank and Signature Bank. Since then, a couple more have been bailed out.[1][2]
According to the Federal Reserve,[3]
“The Bank Term Funding Program (BTFP) was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations (see 12 CFR 201.108(b)), such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
Importantly, the banks don’t have the cash to pay back the loans without selling some of their assets, such as US debt and mortgage backed securities. If they all sell those assets at the same time, it could be enough to crash to US debt and housing markets. For example, selling one house in a neighborhood might get a good price, but if half of the houses or all of the houses are for sale at the same time, then the price will go lower or crash, especially if the people selling need the money more than the asset.
This almost happened in March 2023 when the banks needed money. Instead of the banks trying to sell on the open market and crash the treasury and housing market, the Fed valued the assets at par and loaned them the money. However, the money is due back in March 2024, so unless the Federal Reserve metaphorically buys all the houses in the neighborhood again, a bunch of mortgages, houses, and treasuries are going to need to be quickly sold, and people won’t value them at par.
Adding to the debt stress, the Reverse Repo Market, which has been used as a source of loans to the Treasury Department when the US government needs money, should be drained to zero by about March. The USA is going on a debt binge. [4][5]
Reverse repos are what it is called when the Federal Reserve needs money and uses US government bonds/securities (that they had originally bought from big banks) as collateral to take an overnight loan from big banks. The next day, the Fed pays off the loan with interest and gets the US government treasuries/bonds back. The Fed does not need to engage in reverse repos to get a loan because the Fed can print money whenever they want; so, they are only doing reverse repos to keep big banks from investing their money in the rest of the economy and thus inflating prices further. However, the size of the reverse repo market shrank to from $2.4 trillion to less than $800 billion in less than a year. Why?
A popular theory is that the banks have been instead buying US debt to fund the US Treasury. Once the money for Reverse Repos is drained in March because the banks choose to loan the money to the Treasury for a month or a few years rather than the Fed for a night, then the US Treasury will need someone else to buy US debt, right when the banks need to also sell Treasury debt to pay back the BTFP money to the Fed.[6]
$8 trillion in US debt matures in 2024, so taxpayers have to pay that off before then going $trillions into debt to pay for things like the military, social security, and medicaid. With the biggest historic buyers of US debt, the Federal Reserve, Japan, and China, currently being the biggest sellers, who will loan the US government money?[7]
“The U.S. has always paid its bills on time, but the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe. In a matter of days, millions of Americans could be strapped for cash. We could see indefinite delays in critical payments. Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays. America, in short, would default on its obligations.” -US Treasury Secretary Janet Yellen, former chairman of the Fed (2014-2018), in opinion piece written for the Wall Street Journal, Sept 19, 2021
The Federal Reserve is stuck between a rock and a hard place: Either they act as the lender of last resort by printing money to bail out the banks and US Treasury and risks making the dollar worth less, or they dry up the supply of affordable loans, raise interest rates, and cause defaults on a record scale. So, either we play another round of musical chairs, or the music stops; but, at some point, the music stops.
Indeed, the BTFP increased in use in December 2023 and January 2024, so the second round of musical chairs may already be starting. Fun times ahead.
Editor’s Note: It is a bunch of banks using the BTFP. I’m not researching which because they’re all incestuously connected and I’m not day trading. The government isn’t trying to advertise which banks are insolvent. I’ve written a bunch of articles as it happens. See reference #2 for a summary. The details don’t matter as much as understanding that they’re all insolvent because of fractional reserve banking, even without making bad investments. This is the controlled demolition.
The Bank Term Funding Program (BTFP) is the name for the money that the Federal Deposit and Insurance Company and the Federal Reserve loaned to banks going bankrupt, starting in March 12, 2023. A couple of more banks have been added since then, but the bulk of the money is due in March 2024. The banks don’t have the money, so they’ll have to sell what they own, US debt and mortgage backed securities. Also, the Reverse Repo market funding the federal government should be tapped out by March. With the biggest historic buyers of US debt, the Federal Reserve, Japan, and China, currently being the biggest sellers, who will buy the US debt that the banks and Treasury are selling? So, either we play another round of musical chairs, or the music stops; but, at some point, the music stops. Fun times ahead.
[1]https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm
[2]https://www.hamiltonmobley.com/blog/bank-walks
[4]https://www.youtube.com/watch?v=9wwfFdys6xg
[5]https://www.hamiltonmobley.com/blog/turning-points
[6]https://www.hamiltonmobley.com/blog/turning-points-ii
[7]https://finance.yahoo.com/news/7-6-trillion-us-government-040643412.html
